Amco Insurance Company v. Inspired Technologies

Appeal from the United States District Court for the District of Minnesota.

The opinion of the court was delivered by: Smith, Circuit Judge.

Submitted: March 16, 2011

Before SMITH, ARNOLD, and SHEPHERD, Circuit Judges.

3M Company ("3M") sued Inspired Technologies, Inc. (ITI) for allegedly unfair and false advertising, in violation of the Lanham Act, 15 U.S.C. §§ 1051, et seq., and the Minnesota Uniform Deceptive Trade Practices Act (MDTPA), Minnesota Statutes §§ 325D.43-325D.48. ITI tendered defense of the lawsuit to its liability-insurance carrier, AMCO Insurance Company ("AMCO"), and the lawsuit ultimately settled. Following the settlement between 3M and ITI, AMCO filed the instant declaratory-judgment action against ITI, seeking a declaration that it did not owe ITI any duty to defend or indemnify because the insurance policy's knowledge-of-falsity exclusion excluded the 3M suit from coverage. The district court agreed with AMCO and granted the insurer affirmative summary judgment, concluding that the exclusion barred coverage. ITI presently appeals, and, for the reasons that follow, we reverse and remand.

I. Background

ITI is a small start-up company based out of Le Sueur, Minnesota. Before this lawsuit, ITI purchased from AMCO a "Premier Business Owner's" insurance policy and a "Commercial Umbrella Liability" insurance policy. At issue in this case is the Premier Business Owner's policy ("the Policy"), which amounts to a standard commercial general-liability policy or "CGL." The Policy covered, among other things, "Advertising and Personal Injury Liability" but contained an accompanying "knowledge-of-falsity" exclusion that provided as follows:

2. EXCLUSIONS

This insurance, including any duty we have to defend "suits", does not apply to:

a. "Personal and advertising injury":

1) Caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict "personal and advertising injury";

2) Arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity

ITI and AMCO dispute whether this knowledge-of-falsity exclusion relieves AMCO of its duty to defend ITT.

In November 2007, ITI began marketing a new product that it called "Frog Tape," a painter's masking tape designed to compete with that of other manufacturers, including 3M. Shortly after ITI commenced its marketing campaign, 3M mailed ITI "cease and desist" letters, complaining that ITI's Frog Tape advertisements were false and misleading. In December 2007, ITI retained the law firm of Winthrop & Weinstine ("Winthrop") to advise ITI on its developing dispute with 3M, and ITI asserts that, as early as January 9, 2008, it notified AMCO of a potential 3M lawsuit.

On April 16, 2008, 3M sued ITI in federal district court, alleging in its two-count complaint that ITI violated the federal Lanham Act prohibiting unfair competition (Count One) and MDTPA prohibiting the same. 3M alleged that "ITI has engaged in an advertising campaign for its Frog Tape product including advertising purporting to depict 3M Tape and claiming that certain tests and product demonstrations prove that 3M Tape performs poorly in specific respects, including bleeding of paint onto surfaces masked by 3M Tape." Notably, 3M alleged in paragraph 12 of its complaint that

ITI's advertising purporting to depict results from use of 3M Tape is false, misleading, and deceptive in at least the following specific respects:

(a) ITI's marketing brochures are false, misleading, and deceptive because, among other reasons, the purported "Actual Photo" of 3M Tape does not in fact depict an actual photo but instead has been manipulated in a false and ...

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